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1031 like kind exchange

Growing up, my brother, cousins, nephew and I would play Monopoly all night. We would stay up until the wee hours of the morning playing, building our pretend empires, arguing over who was cheating (Dan . . . ).

This past week, I played Monopoly for real. A year in the making, we closed on the sale of a $21,000,000 hotel. One of the more intense projects I’ve been involved with. In the days (really months) leading up to it there were countless things that had to be accounted for, prepared and crossed off huge checklists which seemingly got longer as we got closer to the day we were working towards. Even though the deal was done and we were close to the end there were last-minute side deals that had to be thought out, negotiated and documented as parties jockeyed for position. I found myself up late the night before sitting in my dining room answering emails, proofreading documents and much like the Monopoly marathons I had as a kid, making sure no one was cheating. The morning of the closing was bright, sunny and not as hot as it could have been for an August day on Wall Street. Surely a good sign as we arrived from that far off land called Brooklyn.We came armed with accordion files, computers and cell phone chargers, The room was filled with paper. Lots of paper. Lawyers on phone arguing with other lawyers. Others leaning over laptop spreadsheets mulling over numbers; Title closers running back and forth from a huge copy machine down the hall from this glass cubicle which seemed to hold a hundred people. Everyone in my office worked incredibly hard. It started at 10:00 in the morning and broke up at 5:30 p.m. Business finally concluded 1:00 the next day.

This (The Closing by Jimmy Dyer) is what it looked like:

There is no rest for the weary as we are on to multiple replacement deals spanning from Manhattan to the Hamptons.

As to complexity and magnitude there was a big sense of accomplishment, satisfaction and relief that we got it done. Still not as fun as Monopoly as a kid . . . .

Marie Flavin of IPX, a Qualified Intermediary I have used, sent me the below email regarding certain tax rules and deadlines affecting investors who are deferring their gain through a 1031 tax deferred exchange.

As stated in the below email I received from Marie, the deadline for completing the exchange is the earlier of 180 days from the sale of the old property or the due date of the taxpayer’s tax return for the year in which the old property was disposed. in order to get the full 180 days, the tax payer will need to file an extension.

Many 1031 Exchanges Will Expire on April 15th!

You Or Your Clients May Have Less Than 180 Days to Complete An Exchange

When a taxpayer sells an investment property and implements a 1031 tax deferred exchange, there are a few time period requirements the taxpayer must follow. 1031 taxpayers have 45 days from the sale of the relinquished (old) property to identify new property to purchase. The deadline for completing the exchange is the earlier of 180 days from the sale of the old property or the due date of the taxpayer’s tax return for the year in which the old property was disposed. If a taxpayer sold property after October 18, 2009 and utilized a 1031 exchange, the taxpayer’s exchange period will expire on April 15, 2010 (assuming the taxpayer is a calendar year paying taxpayer). In order to ensure the taxpayer has a full 180 days to purchase new property, the taxpayer must file for an extension. For example, if the relinquished (old) property closed on December 2, 2009, unless the taxpayer files for an extension, the taxpayer will only have until April 15th to acquire their replacement (new) property. However, if the taxpayer files for an extension of their tax return the taxpayer will have the entire 180 days (May 31, 2010) to complete the exchange.

Tax Forms You May Need

It is important to note that, taxpayers must report their exchange on the tax return for the year in which the exchange begins.

Form 8824 is used to report the 1031 exchange. This form requests the date of the exchange transaction, the date properties were “identified” and financial information obtained from the closing/settlement statement.

Form 4797 is used when depreciable rental or business property is sold.

Circular 230 Notice: This communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties or (ii) promoting, marketing or recommending to another person any tax-related matters addressed herein.
Copyright (c) 2010. Investment Property Exchange Services, Inc. All rights reserved.

I have attended seminars with Marie and I can tell you she is very knowledgeable and has been very helpful in the past with some very intricate transactions.

Circular 230 Disclosure Notice:To ensure compliance with Treasury Department rules governing tax practice, I am informing you that any information contained in any post on this blog or in any attachment (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.

Pursuant to section 1031 of the Internal Revenue Code, taxpayers are able to defer the gain from the sale of investment property (“relinquished property”) by identifying (within 45 days after the date of the sale of the relinquished property) and purchasing a replacement investment property. Taxpayers must complete their 1031 exchange through a qualified intermediary by the earlier of:

180 days from the sale of the relinquished property
or

the filing date of their tax return for the year in which the relinquished property was sold, whichever comes first.

Taxpayers must remember to complete the exchange for the sale of their relinquished properties and the acquisition of their replacement properties between October 18 and December 31st, prior to the filing of their 2009 tax returns, filing an extension if necessary to allow for the full 180 days.

If the taxpayer fails to file an extension, the exchange period will end on the date of tax filing.

The taxpayer should also consult with their accountant or tax advisor to assess the year of gain recognition for any partial or failed exchanges straddling the 2009/10 tax years.